If you are an experienced investor, you may have a hunger for finding a better deal, increasing your percentage returns or creating more wealth per transaction. Maybe you have done your first deal, are proud of it, and due to the law of the first deal, are ready to find an even better investment opportunity.As a result, you go to the MLS and start looking for potential rental properties. You find no worthy properties, as there are no value-add opportunities or fixer uppers, and the few that you see are overpriced (to your standards).You then become discouraged because, while some of these properties can cash flow and produce solid returns, they just aren’t great deals! At the moment, in my market and likely yours, there aren’t great deals on the MLS like there were in 2009. You are ready to take your investing to the next level, and do not know where to begin.Here is were I introduce the concept of Off-Market deal searching.
Market vs. Off- Market
When normal homebuyers think of buying a house, they imagine going to a realtor, looking on Zillow and looking for homes for sale. As real estate investors, in order to get even better deals than homeowners, we must look in places homeowners do not look, and that is where off-market opportunities come In. What is off-market? Off-market leads are homes or multifamilies that are not advertised through a realtor or broker. Furthermore, they may be occupied or owned by someone who is not currently interested in selling. To find off-market opportunities, you are looking through special channels for homes or multifamilies that meet your criteria within your market and somehow finding the owner and convincing him or her to sell you their property.The benefits of off-market deals are quite obvious: no competition, which allows for more leverage in negotiations; better prices; higher returns; helping someone who wants to part ways with his or her property. To expand on that last benefit, often times, people will not list their house for any of the following reasons:- they do not want to work with a realtor- they do not want people visiting their house-they do not want to go through a lengthy sale process-they are embarrassed to sell or do not want others to know-the condition of their house causes them to believe they cannot sell itThe above applies mainly to single family residences but could apply to multifamily as well. In summary, by soliciting potential sellers for opportunities to sell, you may be helping to solve a problem! Those are the benefits of achieving off-market deals, but what are the cons?
Time and Effort
When discussing investment opportunities at your local meetup or online with others, you may hear investors lament that their are “no deals.” There are usually always deals, you just have to find them. As mentioned above, you may not find them on the MLS. And yes, this will take some work.Do you think that the first time you pick up the phone to call a seller, they will happily sell to you at a great price? Maybe, but the chances are slim, and that is not how this process works. Just like anything, working a good off-market deal takes time, effort and repetition.Time: As you find properties that meet your criteria, make regular time to find and create lists with property and owner contact information.Effort: Actively search for properties, add to your list and contact owners consistently.Repetition: repeat this process, refining as needed, until deals are made.
3 Tips to Find Off-Market Deals
Drive for Dollars: Driving for Dollars is a term used to describe driving around your city (if you invest in your place of living) to identify properties that make good candidates for an off-market opportunity. Look for properties that need work in great areas of town and nice neighborhoods. As you see houses or multifamily properties, make note of the address and add it to your list to later find the owner contact information for later contact.
Lists/Mailers: If you are sending mailers or making calls, thiis must continue consistently. The owners must know that you are serious and keep you first in their mind if they decide to sell. One mailer will not make you the go-to contact for a sale. Create a process for contacting owners through any mix of channels consistently and repetitively over time.
Following this process, you may amass a list of 100 properties. That 100 may translate to 10 owners who engage discussion and 1 deal that pencils out to your criteria. While the 1% conversion is low from a percentage perspective, you will have found another great real estate investment that was not available to your competition.
Auctions: While technically not off-market, auctions are great places to find good deals on real estate investments. Search auction sites, such as Auction.com, for bank-owned foreclosures. There will be others ready to bid with you on these properties, so know your criteria and the top price that you can pay.
Key Takeaway
Warren Buffett says that investors should handle their investments like it is a 20 slot punch card, and that we only have 20 good investment opportunities. Thinking this way causes you to want to get better deals, and if you only had 20 great real estate investments to make in your lifetime, would you only search the MLS or marketplace for these opportunities?I think not. Find deals where they are not easily seen, remove competition and add immense value.
This is precisiely how I am searching for my next real estate multifamily investment.
